How to Convert a C Corporation to an LLC

The two questions below are from clients, and they illustrate the power of the LLC.

One client wants to convert his C-corp to an LLC; he must file a conversion with the state of Delaware and then notify the IRS.

The other wants to change his LLC in order to be taxed like an S-corp; he doesn’t need to change his company filing with the state of Delaware. He simply files two forms with the IRS, electing S corporation tax status, and remains an LLC in structure.

Convert C-Corp to LLC

Question:

I currently have a C-corp with Harvard Business Services, Inc. There are only 1,000 shares of stock and I own them all. I don't have any employees and my wife is the corporation's secretary. Can I convert my C-corp into an LLC? Can Harvard do this for me? Is it easy to do? Will it be expensive? Do I need to change the name? I assume I need to revise the EIN.

Thanks,
Mitch
Maryland

Answer: Mitch, if you have a Delaware C-corp, we can easily convert it to an LLC for you, officially, with the state of Delaware and the IRS. The filing is called a conversion. Harvard's service includes all document preparation, filing, Delaware filing fees, a new LLC minutes book with company seal and membership certificates and we will also file the IRS notice. Our package even includes shipping. The ending of your company name will change to LLC.

Convert LLC to S-Corp

Question:

I formed an LLC with Harvard Business Services, Inc. and now my accountant wants me to convert it to an S-corp. Can I do this? Can Harvard do this for me?
Let me know.

Tyrone
Colorado

Answer: Tyrone, the federal government does not recognize the LLC as an entity for tax purposes; therefore, LLCs have the opportunity to elect their desired tax classification. By default, a single member LLC is classified as a disregarded entity; the LLC is ignored for the purpose of filing a federal tax return. 

Multiple-member LLCs are considered partnerships for filing purposes, by default. Bear in mind, these designations are for federal tax purposes and do not change the fact that the business is a limited liability company. An LLC not accepting its default status must file Form 8832 to elect the entity’s classification.

This form allows an LLC to be recognized as a corporation for the purposes of filing taxes. Once an LLC files Form 8832 with the IRS and elects to be recognized as a corporation, it becomes eligible to file Form 2553 and elect sub-chapter S tax status. Ideally, an LLC seeking S-corp status will file Form 8832 and Form 2553 with the IRS simultaneously.

If you have questions about converting your company from one entity type to another, or electing different tax status, give us a call at 800-345-2677 or drop us an email.